Ever since the central bank began to print money and inject it into the financial system after the 2008 financial crash, its answer to any and all economic problems has been to print a bit more.
Interest rates have moved up and down a little over the last 10 years, but in such a narrow range – from a high of 0.75% in 2018 and 2019 to the current 0.1% – that it has had only a limited impact.
Quantitative easing on the other hand has expanded from £200bn in 2009 to £745bn today.
The City’s verdict was that it was the least that the central bank could do. Analysts expected the £100bn increase and prayed for more.
In the US, the Federal Reserve has gone much further, both in the size of the stimulus and in the way it has bypassed the banks to lend directly to corporate America.
In the eurozone, the European Central Bank has stuck to channelling funds through commercial banks, but cut interest rates more aggressively to the extent that they are negative and allow lenders to in effect pay companies to borrow.
There is no mention of either tactic in the letter by the Bank governor, Andrew Bailey, to Rishi Sunak documenting the dismal outlook for growth and the likelihood of an inflation rate below the 2% target running into next year.
Threadneedle Street hopes its more limited offering of cheap money will be adequate when it is channelled by the high street banks to Britain’s hard-pressed corporate sector.
There were reasons for optimism in the report from the Bank’s agents across the UK. They said there was a huge appetite for borrowing, even as the government set about easing the lockdown, giving companies the leeway to expand their businesses.
This demand for loans says one thing: that businesses want to survive, even if it means emerging slowly from the lockdown with their profits wiped out and a balance sheet weighed down with extra borrowing.
That’s the good news. The bad news arrives by the truckload in other areas of the agents’ report from the hardest-hit sectors. Some say the future looks bleak for the next two or even three years and they expect to slim down by closing offices and cutting staff.
Gauging the severity of this threat and how many redundancies are likely from the report is impossible. But the negative feedback is instructive and shows the Treasury that ministers are probably being complacent about the rise in unemployment during the second half of the year.
Bailey has promised to match the severity of the downturn with extra support. He says he has not ruled out negative interest rates or more imaginative ways of pushing money into the broader economy.
It may be sooner rather than later that he begins to contemplate moving in these directions.